GDP growth records quickest upturn in nearly two years in Q2

GDP reading: A second release confirmed that GDP growth picked up to 3.6% year on year in the second quarter from 3.5% in the first quarter, marking the fastest increase since Q3 2022. On a working-day and seasonally adjusted quarter-on-quarter basis, economic growth edged down to 0.7% in Q2 from the previous period's 1.0% expansion, marking the worst reading in a year.

Drivers: The annual upturn was broad-based, with private consumption, public spending, fixed investment and exports all improving. Household spending growth picked up to 5.1% year on year in the second quarter (Q1: +3.9% yoy), which marked the best reading since Q1 2023 amid a tighter labor market. Government spending accelerated to a 5.0% increase in Q2 (Q1: +4.1% yoy). Moreover, fixed investment bounced back, growing 11.1% in Q2, contrasting the 35.2% decrease recorded in the prior quarter, spurred by recoveries in machinery and transport equipment. On the external front, exports of goods and services increased 4.1% on an annual basis in the second quarter, which was above the first quarter's 1.6% expansion. That said, imports of goods and services rebounded 6.9% in Q2 (Q1: -12.2% yoy), marking the best reading since Q1 2023.

GDP outlook: The economy is likely to lose some momentum in H2 following a strong start to the year. Nonetheless, over 2024 as a whole, GDP is set to expand at a faster pace than in 2023, chiefly thanks to a rebound in exports amid healthier EU demand. The potential escalations of wars in the Middle East and Ukraine pose downside risks.

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